RBI cannot be ‘indifferent’ to Govt’s borrowing plan

Dr D. Subbarao, Governor, RBI (left), along with Mr Martin Wolf, Chief Economics Commentator, ‘Financial Times’, at the Second International Research Conference organised by the RBI in Mumbai on Thursday

Mumbai, Feb 2: The Reserve Bank on Thursday said that it can not work as inflation targeter, as it will not serve the best interest of macroeconomic management. “The Reserve Bank can’t be an inflation targeter, or a core inflation targeter. That will not serve the best interest of the macroeconomic management of the country,” said Mr Duvvuri Subbarao, RBI Governor at the two—day Second International Research Conference, organised by the Bank, here. He also maintained that central bank, which hiked policy rates a record 13 times last year to tackle inflation, cannot pursue a policy completely oblivious to growth. Mr Subbarao, however, said that in the past 60 years no government was insensitive to inflation, and inflation management usually takes precedence over growth concerns. RBI had come under criticism in the last one—and—a—half years for aggressive monetary stance on inflation. “If supply side constraints affecting inflation are not managed, is it realistic to expect RBI to contain inflation?” Mr Subbarao asked, and added that the central bank too was confused as to which index of inflation should be targeted as there are many indices. About the rising government borrowing, Mr Subbarao said it may not be possible for the monetary policy to remain “indifferent” to government borrowing programmes.

HBL

Pulling every lever

India’s central bank is one of its best institutions. It is also complicit in a government-borrowing binge

..... The uncomfortable question for the RBI is whether it is partly responsible for the slowdown, albeit indirectly. If you have a central bank that always gets you home safely at the end of the night the temptation for politicians may be to go crazy. The RBI’s position is especially delicate on the fiscal deficit. The central bank oversees a financial system that is a conduit for funnelling savings into government bonds, 70% of which are owned either by the central bank or by the banking system, which remains dominated by state-owned lenders.......

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RBI can't work as inflation targeter: Duvvuri Subbarao

.... "The Reserve Bank can't be an inflation targeter, or a core inflation targeter. That will not serve the best interest of the macroeconomic management of the country," Governor Duvvuri Subbarao said at the two-day Second International Research Conference, organised by the Bank.......

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RBI: Best to be Unpredictable in Currency Management

India's central bank Governor Thursday said it is best to be unpredictable in tactical currency management, reiterating the bank's policy of not disclosing details of intervention in the foreign exchange market..........

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Private sector banks to handle government business – How about a level playing field?

.....However, this notification issued by RBI, though not very clear, hopefully will include payment of pension to employees of the central and state governments and those of the defence forces, who now get their pensions only through the PSBs. It would be of great help to these pensioners, if both the governments start disbursing of pensions through any public or private bank according to the choice of the pensioner, thereby helping the retired employees, especially the senior citizens in their old age.......

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We can’t focus only on inflation, says Subbarao

Governor says it is unrealistic for the central bank to target inflation while being oblivious to growth

The Reserve Bank of India (RBI) cannot focus only on inflation and leave growth and sovereign debt management to the government, governor D. Subbarao said on Thursday even as he insisted the banking regulator should continue to remain autonomous........

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RBI asks banks to evaluate risk of unhedged forex of companies

.... "In view of the importance of prudent management of foreign exchange risk, it has been decided that banks, while extending fund based and non-fund based credit facilities to corporates, should rigorously evaluate the risks arising out of unhedged foreign currency exposure of the corporates and price them in the credit risk premium," the Reserve Bank said in a circular on Thursday......

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Gorkan Says Visible Price Drop in India Will Trigger Cut in Interest Rate

..... “The stance now is that we have reached the peak and any further action will be toward easing,” Gokarn, said while discussing the rupee, the budget deficit and bond repurchases in an interview in his office today. Once the central bank has confidence that the “direction will continue, that’s really going to be the trigger. The visibility of the decline, I think, is the most important indication.”.....

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Got breast milk?

....For a new mother, Smita has a tough daily grind. After taking care of the chores at home, she rushes to work at the Reserve Bank of India (RBI) dispensary from 9 a.m. to 11 a.m., after which she goes to SDMH, and around 2 p.m. returns to the RBI dispensary for an hour. She also sees patients at her home clinic between 5.30 p.m. and 6.30 p.m.......

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Broader role for Monetary Policy : K Kanagasabapathy

....Keeping these post-crisis developments in view, the Reserve Bank of India (RBI) has aptly chosen the theme of Monetary Policy, Sovereign Debt and Financial Stability: The New Trilemma for its second two-day international research conference opened on February 1. The RBI Governor Mr Duvvuri Subbarao has eloquently brought out in his keynote address at the conference the rationale for the choice of the subject and several issues associated in dealing with this new trilemma.............

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Who’s funding growth?

When the RBI Governor talks of the growth momentum decelerating in the context of the sharp deceleration in gross fixed capital formation and, barely a week later, the Chief Economic Advisor says there are reasons to believe India is on a path of cyclical upswing, it’s time to read the data carefully.............

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On buybacks of RBI

This refers to the report “Subbarao says there is need to cap public debt” (February 2). Reserve Bank of India (RBI) governor has acknowledged the undesirability of the central bank buying back old government securities to keep down yields for new bonds. The main objective of a separate public debt office being set up is to resolve the conflict of interest in the central bank functioning as a monetary authority and also as a banker to the government. In a recent interview to the press, a deputy governor of the central bank indicated that it would continue to engage in buyback operations even after it was relieved of the function of public debt management. He made the point that only the portfolio management (yield and so on) will be taken away, while the financing part will be retained. Is this how it works in western central banks? The continuance of buybacks will defeat the purpose of a stand-alone debt office. Would it not be better to go back to the old transparent arrangement under which RBI took the securities on its books in the first instance and unloaded them on the market later at favourable times?

-  A Seshan Mumbai (BS)

Banks not sure of meeting priority sector lending target

..... The RBI also said total credit disbursement to the agriculture and allied areas grew by only 5.6 percent to Rs 4.60 lakh crore in December, which was as high as 25.4 percent in the same period last year, indicating a sluggish growth in priority sector lending. However, some of the bankers also said though they are hopeful of meeting the target.......

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Govt scraps release of weekly inflation data

.... “People used to react to numbers which the data generators had no confidence in,” Sen said. “The finance ministry and RBI wanted the weekly numbers, as these had their analytical models tied to the weekly data. The finance ministry and RBI had argued strongly for holding up the numbers, as otherwise, they would have to alter the whole model,”.....

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Court wants special law to protect SHGs from usury

The State government can enact a special law to protect self help groups (SHGs) from falling victim to “unfair and illegal” practices of microfinance institutions (MFIs), which collect “usurious” rate of interest under threat and coercion, the Madras High Court Bench here has suggested. A Division Bench of Justices Chitra Venkataraman and R. Karuppiah was disposing of a public interest litigation petition filed by All India Democratic Women's Association (AIDWA) State General Secretary U. Vasuki, levelling various charges against MFIs. The judges said that the proposed special law for the SHGs could be modelled on the lines of the Tamil Nadu Protection of Interests of Depositors (In Financial Establishments) Act 1997, which was enacted to protect people who had invested huge sums of money in financial institutions that turned out to be dubious. Petitioner's counsel U. Nirmala Rani had sought a direction to the Reserve Bank of India (RBI) to take appropriate action against MFIs in the State under Banking Regulations Act 1949 and evolve a mechanism to redress the grievances of affected members of SHGs. However, RBI counsel K.R. Laxman submitted a copy of the Micro Finance Institutions (Development and Regulation) Bill 2011 in the court and said that it was now in Parliament for discussion. Once passed, it would help in regulating the MFIs. After recording his submission, the judges said: “It is no doubt that with all the provisions in the Tamil Nadu Protection of Interests of Depositors Act, we still have NBFCs (Non-Banking Financial Companies) cheating unwary public, a fact which cannot be denied by the petitioner herein too.”

HBL

More cities, cheaper land needed for affordable housing

....“The policymaker's dilemma is to whether make affordable housing or enable all to afford houses. In India, affordable housing is difficult. Rural to urban migration puts further pressure,” Mr H.R. Khan, Deputy Governor, Reserve Bank of India, said.......

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Open market operations can hurt price stability: Subbarao

Dr D. Subbarao, Governor, RBI (right), along with Mr Benjamin Friedman, William Josep Maier Professor of Political Economy, Harvard University, at the Second Internaional Research Conference organised by the RBI in Mumbai on Wednesday

Mumbai, Feb.1: The Reserve Bank of India Governor, Dr D. Subbarao, on Wednesday cautioned that conducting open market operations — buying and selling of government paper — for liquidity management could end up hurting price stability. If the motivation for central banks to conduct OMOs is to help out a fiscally vulnerable sovereign or reduce the cost of borrowing for the sovereign, then they could end up holding price stability hostage to sovereign debt concerns, said the Governor at the Second International Research Conference. In financial year 2012 so far, the RBI has conducted OMOs aggregating Rs 71,878 crore.  The OMOs are timed just a day before the auction of government securities, thereby ensuring that banks have adequate liquidity to subscribe to these securities. Out of the expanded borrowing programme of Rs 6-lakh crore (including 364-day treasury bills), the Government has completed 87 per cent of its borrowing programme in the financial year so far. The Governor observed that at times, OMOs could be motivated by the objective of providing liquidity to support government borrowing or of reducing the yield on treasury bonds and, thereby, enhance debt sustainability. It then becomes a case of acquiescence in fiscal dominance. “There is often only a thin line, and the interpretation of the motivation for outright OMOs could vary depending on the circumstances,” said the Governor. In the presence of large sovereign borrowing that makes the Government's fiscal stance unsustainable, central banks typically have little choice, explained the Governor. “If they (central banks) do not conduct OMOs to bring systemic liquidity within reasonable limits, they risk losing control over financial stability. If they do conduct OMOs, they risk losing control over price stability. “What this really says is that fiscal responsibility is much more than a question of whether monetary policy is independent or not. It is a question of sustaining macroeconomic stability,” said the Governor. Dr Subbarao said that in India, the question has been whether the OMOs conducted by the Reserve Bank to manage systemic liquidity are acting as a disincentive for fiscal discipline. The Governor underscored that there is a need to cap total public debt as a proportion of GDP even as he cautioned that excessive borrowing is bad. Emphasising that the quality of public expenditure is important, Dr Subbarao explained that if the Government borrows and squanders that money away on unproductive current expenditure, both fiscal sustainability and growth would be jeopardised. Governments need to spend on merit goods and public goods, in particular on improving human and social capital and on physical infrastructure, he emphasised.

HBL 

Talking heads

Stability mandate

Financial stability will be made an explicit mandate for the central bank by amending the Reserve Bank of India Act, said Mr Harun Rashid Khan, Deputy Governor.  The Financial Sector Legislative Reforms Commission (FSLRC) is considering proposing an amendment to this effect, he added. The RBI is already committed to price and monetary policy stability, Mr Khan explained. To secure the health of the country's financial sector, the term “financial stability” could be incorporated in the RBI”s Preamble. Currently, the Preamble describes the basic functions of the Reserve Bank as: “...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage."

NPA provisioning

The RBI is not considering any proposal to give special dispensation for banks regarding provisioning, despite the rise in non-performing assets. The NPA situation, according to Dr K. C. Chakrabarty, is not a cause for concern. As announced by the Governor, Dr D. Subbarao, in the third quarter review of the Monetary Policy for 2011-12, Deputy Governors Dr Chakravarty and Mr Anand Sinha will have a meeting with about 10 large banks later this month to discuss the NPA situation. The meeting will also look into the measures that need to be taken by the banks, the Reserve Bank, the State governments, and the Central Government to ensure that the profitability and the viability of the banking system is intact as it is now. On the widening trade deficit, Dr Chakrabarty quipped that the rupee has appreciated by 6 per cent and the media should not focus only on the negative news.

Role reversal?

Referring to a meeting with the Finance Ministry, Dr Subir Gokarn, in a lighter vein, spoke about the role reversal between the Finance Ministry and the RBI. At the meeting, while Dr Gokarn spoke on food inflation, Dr Kaushik Basu, Chief Economic Advisor, Finance Ministry, held forth on monetary policy.

HBL

Rs 1,000 denomination banknotes to be issued non-sequentially: RBI

New Delhi: The Reserve Bank today said it will soon start issuing banknotes of Rs 1,000 denomination in non-sequential numbering. The packets of banknotes in non-sequential number will have hundred notes, the apex bank said in a statement. In June last year, RBI had started issuing Rs 500 denomination notes in non-sequential numbering.  "It has now been decided to issue banknotes of Rs 1000 denomination also on similar lines," the statement said. The bands of the packets containing the banknotes in non-sequential number will be superscribed with the words 'the packet contains 100 notes not numbered sequentially'.

FE

Business correspondent model to be changed to aid inclusion

The Reserve Bank of India (RBI) has in principle agreed to permit interoperability of business correspondents (BCs), aimed at helping customers in rural areas access banking services such as cash deposits, withdrawals, remittances and balance enquiries from anywhere in the country on the lines of ATM facilities available to customers in urban areas..............

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